Requirements of Negotiability Flashcards
is the writing a negotiable instrument?
-if not, art 3 doesn’t apply
formal requirements of negotiability
1) document must be in writing
2) promise or order to pay must be unconditional
3) payment obligation must be for a fixed amount of money
4) must be payable to order bearer
5) must be payable on demand or at a definite time
6) must obligate the payor to do one thing, which is pay $
writing and signed
- MAY NOT be oral
- must be reduced to tangible form
- signed includes using any symbol executed or adopted with the present intention to dopt or accept a writing
examples of acceptable signatures
- traditional signature
- printed
- stamped
- written
- thumbprint
- trade or business name
- computer generated
just look for intent
CONDITIONAL promise to order or pay $
- must be unconditional
- typical scenarios that make CONDITIONAL:
1) express conditions to pay (EX: will pay if X mows my lawn)
2) subject to another writing (like a K-I promise to pay subject to the written K)
these do not qualify as a NI because conditioned on something
UNCONDITIONAL Promise to Pay
- references to other documents (“in accordance with the K”)
- payment from a particular fund (will pay from the proceeds of my gown sale)
- countersignature (this requirement- as in a traveler’s check- does not render the instrument non-negotiable)
- prepayment and collateral (references to other records regarding rights as to collateral, prepayment, or acceleration DO NOT make the promise to pay conditional)
- if merely providing info, it’s unconditional)
- MUST BE unconditional*
pay a fixed amount of $
- the principal amount due on the instrument must be a fixed amount of money
- interest can be variable
(promise to pay $50k plus an interest rate of 5% above prime rate..)
payable to order or bearer
- NI must be either an order or bearer instrument
- order= payable to a specific person
- bearer= anyone in possession has legal rights to the instrument
order instrument
-an instrument payable to a specific person requires specific language or words of negotiability (pay to the order of; pay [Paul] or his order)
bearer instrument
- any instrument that does not attempt to pay a specific person
- payable to bearer
- payable to the order of bearer
- payable to cash
- payable to the payee line left blank
- not words of negotiability of not to a specific person*
payable to both order and bearer
-if a writing has characteristics of both an order instrument and bearer instrument then the writing will be treated as bearer paper
checks- an exception
- exception to the words of negotiability requirement
- check still NI if you cross out “pay to the order of”
payable on demand or at a definite time
- the writing must be clear as to when the one required to pay the instrument must do so
- an instrument payable on demand when the instrument’s payee or holder can present the NI immediately after being issued the instrument
- payable at a definite time when the instrument payee or holder can present the NI at a future time that is clear or readily ascertainable
payable on demand
- checks (drafts) are typically payable on demand
ex: pay to the order of paul for $50k- paul can present for payment as soon as mary gives check to him
at a definite time
- notes are typically payable at a definite time
- acceleration or extension clauses- still a NI because there is a definite time
- provisions that extend the due date- still a NI because still a definite time
- obligor can extend the due date, provided the extension is to a definite time
